Now that you have sorted the amount of debt that you are repaying, it’s time to sort out which credit card to use and arrange your bank accounts ready to enable you to streamline and automate the way that you handle your money.
If you have done the just for fun from the First Road to Financial Freedom blog you would know that “APR” stands for “Annual Percentage Rate.” It’s a financial term used to describe the annual cost of borrowing money. So for example if your Credit Card APR: is 20% APR and you carry a balance of £1,000 for one year, you would owe £200 in interest, assuming there are no other fees or changes in the balance.
We will start our journey to financial freedom with credit cards and The first step is to get a new cashback credit credit card. Yes, I did suggest getting a new credit card! The reason for this? In order to learn how to handle credit cards you need to understand what you are going to use it for, get the best one for those needs and then use it properly.
We are going to use our new credit card to enable you to track all your spending in one place and WE WILL be paying the FULL BALANCE OFF every month. Another reason to use a credit card with purchases is because they can offer great protections. These protections can vary by issuer and card type but generally they can include the following:
Fraud Protection
Zero Liability Policy: Most credit cards offer zero liability for unauthorized transactions, meaning cardholders are not responsible for fraudulent charges if they report them promptly.
Fraud Monitoring: Credit card companies often monitor accounts for suspicious activity and may notify cardholders of potential fraud.
Purchase Protection
Damage and Theft Protection: Many credit cards cover eligible purchases against damage or theft for a certain period after the purchase, typically 90-120 days.
Extended Warranty: Some credit cards extend the manufacturer’s warranty on eligible purchases, usually doubling the warranty period up to an additional year.
Travel Protections
Travel Insurance: Includes coverage for trip cancellation, interruption, and delay. It may also cover lost luggage and travel accident insurance.
Car Rental Insurance: Many credit cards offer collision damage waivers (CDW) for rental cars, covering damage or theft of the rental vehicle.
Return Protection
Return Assistance: Some credit cards offer return protection, allowing cardholders to return eligible items for a refund within a specific timeframe if the retailer’s return policy does not apply.
Price Protection
Price Matching: If a cardholder finds a lower price on an eligible purchase within a specified period, some credit cards will refund the difference.
Chargeback Rights
Dispute Resolution: If there is an issue with a purchase, such as non-delivery of goods or services, cardholders can dispute the charge with their credit card issuer and request a chargeback.
Concierge Services
Personal Assistance: Higher-end credit cards often provide concierge services that assist with travel arrangements, event tickets, dining reservations, and other personal services.
Identity Theft Protection
Identity Theft Resolution: Some credit cards offer services to help cardholders resolve issues if their identity is stolen, including assistance with notifying credit bureaus and replacing lost documents.
Credit Monitoring: Certain cards provide credit monitoring services that alert cardholders to significant changes in their credit reports.
Roadside Assistance
Emergency Services: Some credit cards offer roadside assistance, including towing, tyre changes, and jump-starts for vehicles.
Cell Phone Protection
Coverage for Damage or Theft: Some credit cards provide coverage for cell phones purchased with the card, protecting against damage or theft.
Access to Special Events and Offers
Exclusive Events: Cardholders may get access to exclusive events, presale tickets, and special offers.
These protections can provide significant value and peace of mind to credit card users. But it is important to review the specific benefits and terms associated with each credit card so you understand the full range of protections the card is offering and be aware some of them come with an annual fee and you will have to weigh up the cost of the annual fee versus the cost of the protection offered. This may seem like a lot to go through just for a credit card but remember this is more than that. This is a financial education. We are changing our habits and mindset because in order to play the game and win you need to know the rules.
This new credit card will not only help and encourage you to keep track of and understand where your money goes, it will also help you to start to create the habit of being responsible for what you spend each month and paying for it all each month.
The type of card I suggest you get is a cashback credit card, which means that every time you use it, you get cashback, for example you could get back between 1% – 4% of what you spend. This may not seem like a lot but it all adds up!
For example, if you spend £100 on necessities a month and get 2% back(£2), you have reduced the amount you spent by £2, you can create a doubling effect by increasing the amount you pay off your debt by £2. So you would pay the £98 off the credit card to clear the balance and the other remaining £2 you had budgeted for essentials would be paid off your debt which in turn decreases the amount of interest you will pay the next month, which then also shortens the amount of time it will take to pay off your debts. Again this amount of money £2 may not seem like a lot, but remember this is only the start! and it’s an attitude and behavior change that we are after.
It is time to take a new approach to your finances and following the above will take you in the right direction.
Take some time to go through the credit cards available. Make sure to research and understand in which shops you can use your new credit card or which items you can purchase with the card to receive the cashback or any of the other protections they may offer. Researching all of this information will help you in building your financial awareness and confidence with money, which I believe are the first skills needed on the road to financial freedom
